Growth of Indian Electronic Components Industry

The growth of the electronics industry has triggered the expansion of electronic component industry as well. The electronic components produced in India include, among others, Picture Tubes, Diodes, Transistors, Power devices, Resistors, Capacitors, Switches, Relays, Connectors, Magnetic heads, etc.

In order to facilitate the growth of electronic component industry in India, the policy makers need reliable data regarding the electronic component industry including its current production, the current demand-supply and the future demand.

As reliable data is crucial to drafting effective policy guidelines, the Ministry of Communication & Information Technology (MoCIT) commissioned a study in association with ELCINA to address these data requirements and to assess the future outlook of the electronic component industry. ELCINA commissioned IMRB to conduct this study to address these objectives. The report coves the current market size for 21 groups of electronic components and the likely growth of these component groups in future.

Electronic component Industry: Current & Future DemandThe current demand (Total Available Market) for electronic components in India is estimated at USD 9.2 Billion in FY 2009-10. This represents approximately 5.4% of the Global electronic component market. The demand is estimated to grow at an average yearly rate of about 12.5% over the next three years and market size is estimated to be around USD 15 billion in FY 2013-14. This growth will be driven by telecommunication, consumer electronics and automotive electronics industries.

The Indian electronic component market is dominated by electro-mechanical components (like printed circuit boards, connectors, etc.,) and passive components (like wound components, resistors, etc.). However, in recent times, the active components (like Integrated circuits, diode, etc.) and the associate components (like optical disc, magnets, RF Tuners etc.) have also witnessed significant growth. Figure 3 shows the market contribution by type of components. The industry composition is not expected to change significantly over the next couple of years.

Consumer Durables and Telecommunications account for about 60% of the demand for electronic components in India. This is followed by IT & Office Automation and Automotive industries which contribute 22%. Other application industries like Industrial electronics, Medical electronics, Strategic electronics and Lighting industry contribute the balance of the
market. Industries like lighting and strategic electronics are expected to witness substantial growth in the near future. However, given their current small base, there may not be a significant shift in the market contributions. Figure 6 shows the demand contribution of the application industries.

Electronic component Industry: Demand-Supply Gap
The demand for the electronic components in India is largely met through Imports to the extent of about 60%. The countries which account for a major portion of the imports include China, Taiwan, South Korea, Japan and few European countries. The share of imports is higher for specialized & precision components like ICs, Chip components, PCBs, LEDs, etc.

For components which do not require sophistication, India has established a near self reliance. These components include cables, speakers, CRTs etc. India has also been exporting these components to other countries. Figure 8 shows the current domestic production and imports by the various components groups.

Electronic component Industry: Value Addition

Value added is the amount by which the value of goods or services is increased at each stage of its production. In other words, it is the difference between the value of all the inputs (raw materials, purchase services) and the price at which the product is sold.

The value addition in electronic components is extremely limited as most of the raw materials are either imported or are purchased at high cost. Most manufacturers believe that the value addition in the electronic component industry would not exceed 40%. With the increase in imports of components from China, the value addition achieved in India is expected to reduce further. The table below highlights the value addition achieved by component manufacturers
for some key components.

Electronic component Industry: Key Trends

The electronic industry is witnessing the launch of a slew of innovative products like tablets, smart phones, etc. These innovative products have also seen a very high degree of acceptance & adoption by consumers, particularly the youth. The demand for these products has contributed to two significant trends in the component industry:-

a. Miniaturization

b. Surface Mount Technology

A. Miniaturization
Miniaturization continues to be the key trend that is driving the electronic industry

Miniaturization contributes to reduction in cost while providing convenience aesthetics and better quality in the final product. The advent of Surface Mount Technology (SMT) and Nanotechnology has given an impetus to this trend. It is expected that this trend will lead to discrete components being replaced by integrated components. This will have a significant impact in the Indian electronic component industry as it almost entirely manufactures discrete
components.

B. Surface Mount Technology (SMT)

Surface Mount Technology (SMT) enables construction of electronic circuits in which Surface Mount components are mounted directly on the PCB. It offers major advantages such as automation, high speed assembly, miniaturization and better mechanical and electrical performance. Most modern products such as Tablet PCs, Laptops, Display Panels and Mobile Phones are manufactured by SMT.

Surface Mount Technology (SMT) requires the use of Surface Mount Devices (SMD) which consists of Chip components (Passive) and Integrated Circuits. These are not manufactured in India and their imports have being increasing rapidly.

Directions for the growth of Indigenous manufacturing

In order to grow the electronic component industry in a big way, the policy makers and the industry needs to focus on the following:-

a. Identify & Promote electronic components that show high growth potential While the imports are higher for most electronic components, there are a few components like Integrated Circuits (ICs) and Transformers, PCBs and Connectors which are expected to have a significantly higher demand in the Indian market by FY 2011-12 when compared to
their production in India. Therefore, it is important for the policy makers to promote indigenous production of these components immediately.

Electronic component industries and end user industries like Television, Automobiles, and IT products should ideally be concentrated in a cluster in order to gain in terms of lower inventory, lower transportation cost, etc. Countries which lead in manufacturing of electronic component have successfully adopted this practice. In our view, India should have a number of such clusters in each of the major application industry. We recommend that the policy makers and industry notify the following clusters and EHTPs:-

Consumer Electronics Industry:- We recommend that a cluster be created to produce components like ICs & Power ICs, Wounded components, Resistors, capacitors, Cables, Connectors, SMT Assembly, etc., to the cater to the Consumer Electronics Industry. Some of the possible locations these clusters could come up are Greater Noida in the North India and Mumbai/Pune in West India.

Automotive electronics Industry: – We recommend a cluster be created to produce components like Power Chips, Relays, and Fuses that could be used in the automotive electronics industry. These clusters could either come up in of Mumbai-Pune region or Gurgaon or Chennai due to the high concentration of automobile manufacturing in these locations

Information Technology & Office Automation Industry: – We recommend that a cluster be created in places where large IT manufacturers have set up their manufacturing and assembling plants. The electronic component cluster could focus on producing components like PCBs, Semiconductor chips, etc which are used in the IT & Office Automation industry.

Develop & Promote R&D centers in the country

India is lagging behind significantly in manufacture of high technology components. There are also components where the share of imports is much higher. One of the reasons for lower share of indigenous production is the lack of technology. In order to address this issue, we suggest that we focus on developing R&D centers on Private-Public Partnership. We also recommend that such R&D centers focus on SMT, LEDs & Nanotechnology on an urgent basis. In addition, Government could allocate corpus funds each year to focus on development of components involving these technologies.

d. Rationalization of Taxation policies.

The policy makers could amend or relax a few monetary policies in order to boost indigenous production. These policies include:-

Ensure uniform taxation system across the county

Abolish inverted duty structure

Lower slabs of taxes for purchase of raw materials and components that are sourced locally

Imports of all inputs including raw materials for zero duty items (ITA-1) at zero customs duty

Indian Government has recently taken a right step towards implementation of the GST. It would be extremely useful if such taxations be brought to use at the earliest.

Improve overall infrastructure in and around major Industrial Hubs and connectivity with major markets & ports.

The government could adopt a Public Private Partnership (PPP) or Build-Operate-Transfer (BOT) model along with Infrastructure management companies to develop and maintain the
infrastructure at the various industrial hubs and ports. This could follow a model as the one used to develop many of the National Highways and International Airports in India.

Impact of the implementation of recommendations on the Electronic Component Industry.

The electronic component industry is currently estimated to growth at the rate of 12 % over the next two years to reach USD 14.8 billion in FY 2013-14 without any interventions from the
policy makers. However, if the policy makers were to implement the above recommendations within the next one year, the industry could potentially achieve a CAGR of 22% as projected by the Task force report from FY 2014-15 onwards. The revised market estimates if the policy makers were to implement recommendations are depicted in Figure 13.1

Conclusion:-

The growth in Telecommunication, Consumer durables, Information Technology & Office Automation and Automobile industry has contributed to significant growth in the electronic
component industry. While India presents a large demand, indigenous production is lagging behind owing mainly to the lack of technology and policy initiatives that can contribute to the
growth. India has the capacity to develop new technologies which it has successfully demonstrated in fields like Information Technology (IT) and Bio-Technology (BT). The right
impetus will lead to the growth of indigenous manufacturing of electronics components. This will lead India to become one of the electronic manufacturing hubs of the world